Sunday Editorial: JEA is facing a death spiral

Sunday

For airplanes, a death spiral involves the loss of control as an aircraft spins downward.

For electric utilities like JEA, a death spiral is the clear result of doing nothing.

JEA is already seeing the first signs:

• Customers are increasing but revenues are falling. JEA projects that by 2030 there will be 16 percent more electric customers while energy sales drop by 8 percent.

• Alternative forms of energy like solar with battery backup will be cheaper than JEA’s rates in about seven years.

• The monopoly status of JEA is about to be blown up as other companies get in the energy business while a Constitutional Amendment in the works for Florida would enforce competition among utilities.

• Faced with large amounts of overhead – JEA still must provide power to anyone in its service area – JEA would be forced to raise rates to compensate. JEA officials estimate that a rate increase of 52 percent could be required if it doesn’t change.

• Businesses, seeing big rate increases, would have incentives to either leave JEA for lower electric rates or set up alternative sources of energy. And so the death spiral would continue.

• The impact on the homeowners and the businesses in Jacksonville would be huge. City Council and the mayor would have to decide if the regressive tax of JEA rates is more valuable than other sources of revenue such as property tax increases.

Though JEA has cut over 400 staff positions and cut back on capital expenses, all of these savings could be wiped out by the costs connected with the nuclear construction project at Plant Vogtle in North Georgia.

This information was presented at the JEA board meeting Tuesday as more of a warning than a proposal. CEO Aaron Zahn has been clear that he wants to move JEA into alternative forms of business to help compensate for the gradual loss of revenue in its core businesses.

JEA will be seeking changes in its charter with the city to get involved in retail businesses connected to the electric industry.

Frankly, what has been proposed so far doesn’t appear to be sufficient to make up for the drastic revenue losses and the staggering impact of a utility industry that has fundamentally changed.

One hopeful sign involves the wide use of electric vehicles. That could be a huge new market for utilities unless customers use their own solar-battery arrays to provide power for their vehicles.

While this discussion is new for Jacksonville, utility death spirals have been discussed in the industry for years.

Early signs of a death spiral have appeared in California where the state has encouraged solar generation. By 2020, 85 percent of California’s electric customers will be getting their power from something other than investor-owned utilities.

In 2013, the Edison Electric Institute released a report on electric utilities that forecast eroding revenues, declining profits, rising costs and weakening credit along with falling costs for alternatives like solar panels with battery backup.

In 2016, two investment advisors declared in an article in Barron’s, “The sun will set on electric utilities.”

In 2018, the Black & Veatch survey of utility industry leaders reported that 71 percent see the death spiral as a real outcome if utilities don’t use alternative solutions. Black & Veatch is a global engineering and construction company that does a lot of business with utilities.

The report noted that utilities must remain true to their core business while adapting to a new disruptive future. That will be quite a balancing act.

The wave of the future has begun with a modest Jacksonville home on the Southside that has installed a solar electric system with a battery backup. It’s off the JEA system. Goodbye revenues.

In the near term, JEA is not planning to raise rates or propose changes in its contribution to the city. JEA leaders say they have every intention of forcefully seeking alternatives to the death spiral.

But if those alternatives don’t work, then making major changes in JEA would be warranted. That could include hiring an outside management team or selling it.

The controversy over selling JEA has obscured the very real challenges facing the utility.

Let’s hope the city isn’t faced with trying to sell an asset in a death spiral.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.